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For Final Budget Act, de Blasio Makes $4B in Red Ink Disappear — But Leaves Adams Billions of Worries

December 2, 2021 By Greg David, THE CITY
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Logo for THE CITYThis article was originally published on by THE CITY.

With the stock market headed for another big year and interest rates near zero, Mayor Bill de Blasio slashed the budget gaps he’s leaving his successor by a third in an updated fiscal outlook released Tuesday.

But Mayor-elect Eric Adams may not owe de Blasio much of a thank you.

The latest projection still shows gaps of almost $8 billion for Adams’ first term and provides no money to finance pay raises as contracts with municipal unions expire. It also leaves the next administration facing a “fiscal cliff” of almost $2 billion when federal funding runs out for many of the initiatives de Blasio has launched since the COVID pandemic shook the city.

“Although the budget gaps appear manageable, Eric Adams has some work cut out for him and he should start right away,” said Andrew Rein, president of the fiscal watchdog group the Citizens Budget Commission.

De Blasio did not make much of a to-do about his final actions on the city budget, releasing the key documents Tuesday afternoon without a media briefing. In a statement, he insisted he had met the challenge the pandemic presented to the city’s fiscal health.

“As this administration comes to an end, we’ve substantially lowered budget gaps and increased reserves, leaving the next administration with a strong foundation to continue New York City’s recovery,” the statement read.

Positive Indicators

After a summer of stagnation, the city’s economic rebound had picked up momentum in October with the largest increase in jobs in months and international tourists trickling back to town.

No one knows if responses to the Omicron variant will change that economic trajectory, although because of weakness earlier this year the administration slashed its estimate for 2021 job gains by almost half, to 232,000 from an optimistic 445,000.

And the budget gaps were not reduced because of fiscally responsible actions by the city — but rather by national economic trends.

The city began the year with pension plans that were 78% funded, compared with the state plan, which has consistently averaged more than 90% of the funds needed to pay the benefits it is obligated to pay. By the end of June, soaring markets had pushed the city ratio to 98%.

As a result, the city projects it will be able to reduce its contributions to its pension funds by a total of $5 billion over Adam’s first three budgets.

Similarly, the decline in interest rates means the city’s debt service of principal and interest on its outstanding bonds is expected to fall by more than $1 billion over those years.

Fiscal experts tick off numerous problems facing the incoming mayor, who is required to propose his first budget within two weeks of taking office on Jan. 1. The two most important are labor contracts and ways to fund new programs currently being financed by federal COVID aid.

The city’s pact with its largest union, DC 37, expired earlier this year and others will follow in the coming year, including the United Federation of Teachers contract.

Even annual pay increases of only 2%, far less than the recent rate of inflation, would cost $2.2  billion a year for the fiscal year beginning July 1, 2024, according to the Citizens Budget Commission.

“This round of bargaining can be a budget buster or city saver if the pay increases are funded by efficiencies,” said Rein.

He added: “There is a lot of knowledge in the city from City Hall to the frontline workers on how we can make the city more efficient.”

State Comptroller Tom DiNapoli wants to see more belt-tightening in the city budget.
Photo courtesy of State Comptroller’s Office

Cloudy Future

By contrast, the de Blasio administration’s budget plan offers virtually no specifics on programs to save money.

The second major problem is that the city is using federal aid to fund very popular programs like 3K, expansion of mental health services and educational enhancements, as well as  nonprofit administrative support. The city will have to come up with at least $1.3 billion toward the end of the first Adams administration to keep the programs running.

The city also has not budgeted the $400 million needed to keep in place prevailing wages of shelter security guards and an increase in the value of rental vouchers.

State Comptroller Thomas DiNapoli also called for an aggressive effort by Adams to implement changes to city operations to save money. He noted the failure of de Blasio to do so in the current budget, which also reduces a target for labor savings negotiations with the unions to $500 million from $1 billion annually.

DiNapoli also suggested that less robust economic growth might lead to slower growth in tax revenue than currently expected.

“The next administration should make efforts in its preliminary budget next year to reasonably assess the effects of changes to the city’s revenue over the plan and make the hard decisions necessary to balance the budget for [the budget Adams will propose in January] and beyond,” he added.

Adams had no comment on the budget revisions from Ghana, where he is vacationing. But previously he has been sharply critical of de Blasio’s failure to institute aggressive efforts to cut costs by giving agencies a target for reducing spending known as “programs to eliminate the gap,” or PEGs. He has suggested he will impose PEGs on all agencies of 3% to 5%.

 

THE CITY is an independent, nonprofit news outlet dedicated to hard-hitting reporting that serves the people of New York.

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